Wednesday, January 5, 2011

"Is China Green Agriculture The Next Chinese Fraud?" (CGA)

In a move that stunned Wall Street, how the heck did we miss this one?
China.................check
Green................check
Agriculture........check
We've never posted on CGA although it and CAGC have popped up in the feed-readers and terminals a few hundred times.
The stock is down 10.72% at $8.08.
From ZeroHedge:

After Muddy Waters came out with research two months ago that singlehandedly destroyed recent Chinese NYSE IPO, RINO, we predicted that there would soon develop a cottage industry of micro investment firms who do diligence on various Chinese frauds (and there are many of them), establish a short base, and subsequently release a research report in the name. Today we get the latest such possible casualty: meet China Green Agriculture, a Xian, China firm founded in 2000, which "engages in the research, development, manufacture, and distribution of humic acid based compound fertilizers in China... The company also engages in the development, production, and distribution of agricultural products, including fruits, vegetables, flowers, and colored seedlings."

Sure enough the company IPOed on the NYSE in mid-2008, and if the just released research report by J Capital Research is correct, the firm is about to join such other disgraces as RINO in the NYSE IPO dunce corner. To wit: "In this report, we present compelling evidence that China Green Agriculture (NYSE:CGA) has significantly over-stated its true revenues and earnings. We estimate that CGA’s value is no more than $2.85 per share, as opposed to its current market price of $9."

From the report, the key concerns with CGA, which mirror almost verbatim those that Muddy Waters had with RINO, are the following:

Vastly Inflated Revenue

False Claims About Technology

Questionable Tax Reports

Possible Self-­Dealing

Excessive Purchase Price for Gufeng Subsidiary

Improbable Margins

Dubious Related-­Party Transactions

Huge Multiple Paid for Gufeng

Excessive Share-­Based Compensation

and most troublingily:

No Response from CGA: Over more than a year, we have made repeated requests in person, in writing, and by telephone to CGA executives, including the company chairman, to verify or disprove the information in this report or to provide even one telephone number for even one sales office. While affable and communicative, the company has in every case refused to provide any specific responses to our questions....MORE